The Forex is a 24h/24 opened market and available for private individuals 5 days on 7.
However, there are strong activity variations depending on time.
So it is relevant to study the daily cycle in order to intervene in the more favorable conditions.
By studying the geographical distribution of the transactions, we notice that London is, with 34% of the transactions, the more important market place on the Forex.
This can be explained by the fact that London is historically the Forex market place.
If we add to London’s transactions, the other European countries’ one, we have the half of the transactions done in Europe; so it becomes evident to have the more important activity during the European session.
The great financial institutions usually have three exchange brokers’ teams that word in 3*8; a team is in London, another one in New York and the last one in Asia, Singapore or Tokyo. When a session ends, the exchange brokers give their orders (open or pending positions) to the following team; this is called the book transfer.
In Europe, the trading day begins at 8h00 (French hour as all the hours given below), the exchange brokers test the markets and begin to build their positions for the morning or the day.
Between 10h00 and 11h00, European economical figures are released, for example, the IFO index, the ZEW, the industrial orders, the PMI….
The market is cooler until 14h00, when the New York’s traders begin to take position. Most of the American economical figures are released at 14h30 (growth, unemployment, inflation…), the other part at about 16h00 ( ISM, housing sales…). At this time, the activity is the strongest of the day.
The activity begins to decrease at 18h00 with the end of the European session. It is the afternoon in the United States, the market is cooler.
The activity decreases again at the end of the American session at about 22h00.
Certain places in Asia begin to work at 22h00-23h00 but the activity mainly restart from 01h00-02h00.
Then the market is cooler fron 04h00 to 07h00 because of launch time on the Asian markets and an afternoon with very little movements.
After, the Londoner exchange brokers arrive and a new cycle restarts.
On this graphic, which represents the number of ticks and pips depending on the time, we notice that this two data series are strongly linked. The activity is concentrated during the European session and it reaches its maximum during the European and American sessions overlapping period.
According to the kind of trading used, it will be relevant to choose the most favorable hours. The scalper (a trader who does a lot of very short time positions) will give priority to the European session and more specifically to the period common to the European and American sessions, that is to say from 14h00 to 17h00, which is the most volatile period. A medium-term trader may prefer enter into positions during the less volatile periods that is to say early in the morning or during the Asian session.
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|Introduction to Online Forex|